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So, you guys remember Baker Street?


racemize
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If he read "What I Learned Losing a Million Dollars" this may have been avoided, or maybe not.  I highly recommend the book, which details the emotional and psychological effects of a trade that was initially up and ended as a large loss that wiped out the trader's net worth and reputation.

 

https://www.amazon.com/Learned-Million-Columbia-Business-Publishing/dp/0231164688

 

 

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I thought the article was about SHLD until I read through it.

I bought SHLD in 2013 and thanks to his SHLD article, there was a huge short squeeze that helped me get out safely. I'd remember this guy forever.

 

 

One lesson is that if you have a big position, you HAVE to cut your losses quickly if the position doesn't go in your direction immediately.

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From his website: "Baker Street Capital Management is a value-focused investment firm".

 

A lot of people calling themselves "value investors" or "value focused" but not adhering to concepts of Prudence and Moderation (Two of Plato's Cardinal Virtues).

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There's a lot of love for the concentrated value investing philosophy, which is great if it works well.  But if it doesn't you're in his shoes.

 

If you only own a few stocks you look like a genius as they're going up.  But as this thread shows the love is lost if you have losses. 

 

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There's a lot of love for the concentrated value investing philosophy, which is great if it works well.  But if it doesn't you're in his shoes.

 

If you only own a few stocks you look like a genius as they're going up.  But as this thread shows the love is lost if you have losses.

 

It's not just concentration, but concentration + leverage.  In this case, levered equities. 

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I had an economics professor explain leverage in a great way.  "Leverage is like the dark side of the force, it is very powerful but ultimately leads to fear and failure."

 

Unless you're the Emperor, then it makes you rule the galaxy (ie John Malone).

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Wish I heard of him earlier.... everything that he picks is a great short!

 

Not really true. He owned a chunk of UVIC - Florida nanocap contact lens company that was bought out by B&L (Valeant).

http://www.siliconinvestor.com/readmsg.aspx?msgid=27642316&srchtxt=Baker

He left director position and sold his shares to company for not much gain before the B&L buyout though.

So maybe you're somewhat right.  ;)

 

(I also sold out for a wash to small gain before B&L buyout too.  :'( )

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Two main takeaways for me:

 

1.  Don't make your largest holding an 85% position (123 mm/145 mm)  This math is not precise but either way this position appears to have been well north of 60%

2.  Don't invest in companies that are irresponsible or otherwise have too much debt.

 

Best of luck to this guy.  Hope he bounces back. 

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Well Munger says to study failures, and this case is a Lollapalooza indeed.

 

My takeaways are, unless you are business with a really sound partner, i.e. you are invested in BRK, thirty years ago, with a Buffett at the helm, don't concentrate so much.  I will have to go back and look, but I don't think Buffett ever had that much in any 'cinch' like say American Express during the salad oil scandal. The estimate on the board and Forbes looks as if he had from 60 to +80 in WAC.  The business was not good enough for that. (Munger seems to have gone to those kinds of %'s, but those were cinches.)

 

With WAC, you have execution risk, and there where there is one cockroach there often are many.  And you had to know what the asset values, in this case earning power, in an industry that is changing.

 

We have a case of poor portfolio management and poor stock selection both.

 

So this is a why not and how not to be a concentrated investor!

 

 

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Well Munger says to study failures, and this case is a Lollapalooza indeed.

 

My takeaways are, unless you are business with a really sound partner, i.e. you are invested in BRK, thirty years ago, with a Buffett at the helm, don't concentrate so much.  I will have to go back and look, but I don't think Buffett ever had that much in any 'cinch' like say American Express during the salad oil scandal. The estimate on the board and Forbes looks as if he had from 60 to +80 in WAC.  The business was not good enough for that. (Munger seems to have gone to those kinds of %'s, but those were cinches.)

 

With WAC, you have execution risk, and there where there is one cockroach there often are many.  And you had to know what the asset values, in this case earning power, in an industry that is changing.

 

We have a case of poor portfolio management and poor stock selection both.

 

So this is a why not and how not to be a concentrated investor!

 

 

 

Are you sure about Buffett and AXP? My recollection is that he had like 2/3 or 3/4 of his portfolio in it.

 

And Munger once had over 100% of his personal net worth in a Canadian Utility, though I forgot the details of that.

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